Intel's Mobile Losses Mount

NEW YORK CITY — Intel reported significant increases in net income during its second-quarter revenue report, as well as record quarterly microprocessor shipments. Despite a generally good quarter, the Santa Clara, Calif., company showed massive losses in its mobile unit.

For the second quarter, Intel reported revenue of $13.8 billion (a $1 billion increase from a year earlier), along with operating income of $3.8 billion, net income of $2.8 billion, and earnings of 55 cents per share. A spokesperson credited the microprocessor shipment record for the results, though specific shipment numbers were not given.

"With the ramp of our Baytrail SoC family, we have expanded into new segments such as Chrome-based systems, and we are on track to meet our 40 million unit tablet goal," CEO Brian Krzanich said in a press release. "In addition, we hit an important qualification milestone for our upcoming 14nm Broadwell processor, and expect the first systems to be on shelves during the holidays."

Revenue increased across multiple groups. PC client group revenue rose 9% from the first quarter and 6% from a year earlier to $8.7 billion. Desktop platform volume in this segment rose 8% from a year earlier, and average selling prices increased 2%. Notebook volume rose 9%, while prices decreased 7%.

Data center and Internet of Things group revenues increased more than 10% each to $3.5 billion and $539 million, respectively. The software and services operating segments reported revenue of $548 million, down 1% from the first quarter but up 3% from a year earlier.

Still, the company reported a significant decrease in revenue in its mobile and communications group, which dropped 67% from the first quarter and 83% from a year earlier to $51 million.

Stacy J. Smith, Intel's CFO and executive vice president, attributed this decrease to losses in the 2G, 3G, and multi-communications sectors as the industry transfers to LTE. If the company cannot integrate mobile connectivity into communications within three or four years, Smith expects it to be locked out of a critical market.

Ross Seymore, an analyst at Deutsche Bank Equity Research, says Intel's mobile revenue will be spurred by the launch of the 3G version of its SoFIA platform in the fourth quarter and the LTE generation next year. Krzanich shared his optimism.

"I believe, over time, we can make this a profitable business. We have some ground to make up in moving LTE to Category 6 and having our products designed for this segment," Krzanich said. "As we turn into SoFIA, you'll see a family of products… really targeting this space and that's how we become profitable."

Additionally, Intel's board of directors authorized an increase of $20 billion to its share repurchase program and plans to increase share repurchases. The company used $2.1 billion to repurchase 74 million shares of stock in the second quarter, and it expects to spend $4 billion in share repurchases in the third quarter.

"This change in our capital structure is the continuation of a multi-year focus on creating value and returning cash to our shareholders," Smith said.

Looking forward, he expects revenue to increase 4% in the third quarter to $14.4 billion and gross margins to increase to 66%. This would be driven by lower platform unit costs and higher platform volumes, which would be partially offset by lower selling prices.

Intel's effort to break into the Mobile market has been unimaginative, even timid. Instead of using their lead in Fab nodes to create game-changers in the Mobile space, they are soliciting Foundry business from bit players !

Remember Jessica....it's never "too late". Moreover the consolidated lead doesn't exist, expecially in the evanescent handset market. I tend not to tie the process with the success of a device and i think Intel is not so naive to hope for success tied to process only. There are other variables.

Look at Qualcomm, because to Mediatek it was constrained to cut off its SOC price list in China, and this is only the beginning of a storm.

It would seem that Intel's "Data center and Internet of Things group revenues increased more than 10% each to $3.5 billion and $539 million, respectively" is a pleasant surprise and may have upward traction in the coming quarters. Intel may have found a niche in the I-o-T business, finally.

It also looks like the share repurchase program is shoring up the recent run up in INTC stock price!